ITO,WARD-2(4), KOLKATA, KOLKATA vs. SYSTEM INCORPORATE(P)LTD, KOLKATA

Ground No.l raised by the assessee reads as follows :- “1. That the Id. CIT(A) erred in deleting the addition of Rs 16,44,488/- being undisclosed receipts of the assessee without proper verification and analysis of bills raised and payments received during the I- Yr 2005-06 vis-a-vis F Yr. 2006-07.”,

The assessee is a company. It is engaged in the business of software development. The AO noticed that the assessee had claimed credit for TDS of Rs.1,56,335/-. The AO noticed from the profit and loss account that the assessee had shown income of Rs.7,40,000/-. The AO was of the view that the income of the assessee was not commensurate with the receipts on which TDS was made as mentioned in the TDS certificates given by the following three companies: i) Indraprastha Power Generation : Rs.2,70,000/- ii)SECL : Rs.4.50,000/- iii)Piper War Area : Rs.17,14,488/-

Before the CIT(A) the assessee pointed out that the assessee follows mercantile system of accounting. It had raised bills for jobs executed and these appeared in the debtors list till the payments were realized. The TDS is deducted only when the actual payment is received. However, the amounts due have already been shown by the assessee in the earlier years. In other words the amount in question disclosed in the TDS certificates has already been declared by the assessee in the earlier assessment year. The AO in the remand report dated 21.10.2011 filed before CIT(A) did not dispute that the sum added by the AO to the total income had already been declared by the assessee in the returned income filed for the earlier assessment years. The CIT(A) taking note of the remand report deleted the addition made by the AO by holding that the payments reflected in the TDS certificate have already been shown and included in the gross receipts of the earlier years of the assessee.

Aggrieved by the order of CIT(A) the revenue has raised Ground No.l before the Tribunal.

We have heard the learned DR, who relied on the order of the AO. In the light of the findings of CIT(A) that the amounts in question have already been shown and included in the gross receipts of the assessee in the earlier assessment year and in the absence of any thing contrary being brought to our notice by the learned DR , We are of the view that the addition made by the AO was rightly deleted by CIT(A). Accordingly ground No.1 raised by the revenue is dismissed.

Ground no.2 raised by the revenue reads as follows :- "2. That the Ld. CIT(A) erred in deleting the disallowance of Rs.55,000/- made u/s 40(a)(ia) without considering the remand report of the A. 0. stating specifically that no evidence was furnished by the assessee. "

The assessee made payment of RS.1,88,155/- towards office rent and maintenance. The assessee also made payment of Rs.67,671/- as consultancy charges. In respect of rent and maintenance charges AO found that no tax had been deducted at source and accordingly Rs.1,88,155/- was added to the total income by invoking the provisions of section 40(a)(ia) of the Act.

Before CIT(A) the assessee pointed out that out of the sum of Rs.1,88,155/- claimed under the head 'rent and maintenance charges a sum of Rs.l,33,161/- represents rent paid to Mrs. Anita Mazumdar. The assessee had not deduct tax at source on the said payment as required us 194I of the Act and therefore addition was sustained. With regard to the remaining sum of Rs.55,000/- the assessee pointed out that the same was maintenance charges and did not fall within the category of rent as defined in section 194I of the Act. CIT(A) found force on the aforesaid submissions and deleted the addition of Rs.55,000/-.

Aggrieved by the order of CIT(A) revenue has raised ground No.2 before the Tribunal.

The grievance of the revenue as projected in the grounds of appeal is that the remand report of AO filed before CIT(A) has not been taken into consideration by CIT(A). We have perused the relevant part of the remand report of the AO as extracted in the order of CIT(A) and find that no specific objections was pointed out before CIT(!\.) by the AO in the remand report except contending that no evidence of payment of TDS was filed by the assessee. In fact the specific contention of the assessee was that TDS was not applicable on a sum of Rs.55,000/- as it was office maintenance charges not in the nature of rent covered u/s 1941 of the Act. The AO has not raised any objections on this contention in the remand report. Consequently ground no.2 raised by the revenue is dismissed.

AO identified expenses to the tune of Rs.6,59,188/- debited to the profit and loss account which were expenses towards house rent, printing and stationery and office expenses etc. AO was of the view that the aforesaid expenses were not necessary for the purpose of business of the assessee. AO also observed that the assessee failed to produce books of account bills and vouchers to verify the expenses. He found that a sum of Rs.45,265/- was incurred towards professional tax, Audit fees and FBT etc. and allowed these expenses. With regard to the remaining sum of Rs.6,13,923/- AO disallowed 20% of the aforesaid expenses for want of evidence to verify the expenses. Thus AO made addition of Rs.l,22,785/- to the total income of the assessee.

Before CIT(A) the assessee pointed out that all the expenses in respect of which disallowance was made by the AO are necessary for the purpose of the business of the assessee. He pointed out that its accounts were audited and passed on physical verification of all bills and vouchers. It was submitted that no specific discrepancy was pointed out by the AO. In the remand report the AO had not offered any comments but expressed a view that there is no basis on which expenses were classified as 'essential' and 'not essential' to run the business of the assessee. CIT(A) was of the view that the addition made by the AO cannot be sustained.

Aggrieved by the order of CIT(A) revenue has raised ground no.3 before the Tribunal.

The learned DR relied on the order of AO. We are of the view that the basis on which AO made the impugned disallowance cannot be sustained and was rightly deleted by CIT(A). The law is well settled that it is for the assessee to decide what expenses are necessary for the purpose of business. AO cannot sit in judgments on System Incorporate (P) Ltd. A.Y.2007-08 4 what these expenses are essential or not essential for the purpose of business. We, therefore, dismiss ground no.3 raised by the revenue.

In the result the appeal of the revenue is dismissed.